This is the final installment on Theory of Constraints pricing. At least for now. Goldratt’s Theory of Constraints, The Goal, and Throughput Accounting don’t address pricing specifially. So, I tried to summarize what we do with our clients. This pricing exercise has resulted in 10 to 20% increase in profits for our clients, so I would expect the same for you. So let’s summarize what we covered about pricing.
- Part 1: We discussed the importance of and how to calculate the Throughput per Constraint Unit (T/CU) for each of your current products or services.
- Part 2: We discussed how to calculate a minimum T/CU which is like the minimum price you need to charge to cover your operating expenses and make a profit.
- Part 3: We then compared the T/CU we get for each product/service to the minimum T/CU we calculated.
- Part 4: Next we discussed how to handle products/services that are priced below the calculated minimum T/CU.
- Part 5: And finally we discussed how to handle products/services that are priced above or well above the calculated minimum T/CU.
With this additional information, I hope you can determine a price that 1) will help you to achieve your financial goals; 2) meet or exceed the value perceived by the market place (will customers buy at that price?); and 3) establish the position, brand and image you desire in your supply chain.
Here’s to maximizing YOUR profits and setting your prices!
By Dr Lisa Lang
P.S. Check out our new Theory of Constraints Pricing Project! https://www.scienceofbusiness.com/consulting-services/theory-of-constraints-toc-pricing-project/